Mishal v. Boardwalk Pipeline Partners, LP, et al.

Court: Delaware Court of Chancery
Case Number: 2018-0372-JTL
Judge: Vice Chancellor Travis Laster
Class Period: 04/30/2018 - 07/18/2018
Case Contacts: Mark Lebovitch, John Vielandi, David MacIsaac

Boardwalk Pipeline Partners, LP (“Boardwalk” or the “Partnership”) was a publicly traded limited partnership incorporated in Delaware.  The Partnership is governed by the Third Amended and Restated Agreement of Limited Partnership of Boardwalk Pipeline Partners, LP, dated as of June 17, 2008, as amended (the “Partnership Agreement”). Section 15.1(b) of the Partnership Agreement gives Boardwalk GP, LP (“Boardwalk GP”), which held more than 50% of the outstanding common units, the option to purchase all the common units of the Partnership held by persons or entities other than Boardwalk GP and its Affiliates if (1) Boardwalk GP and its Affiliates hold more than 50% of the common units then outstanding and (2) Boardwalk GP receives an opinion of counsel that the Partnership’s status as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by subsidiaries of the Partnership that are regulated interstate natural gas pipelines.

Under Section 15.1(b) of the Partnership Agreement, Boardwalk GP may exercise its right to purchase the common units that it and its Affiliates do not already own within 90 days of receipt of such opinion of counsel. The Partnership Agreement does not expressly provide a date certain by which Boardwalk GP must request or receive such an opinion. Section 15.1(b) of the Partnership Agreement provides that if Boardwalk GP exercises such option, the per unit purchase price shall equal “the average of the daily Closing Prices per Limited Partner Interest of such class for the180 consecutive Trading Days immediately prior to the date three days prior to the date that the notice described in Section 15.1(c) is mailed.” The Partnership Agreement imposes no date certain for the mailing of notice of the election, except that it must be no less than ten days and no more than 60 days before the Purchase Date.

On March 15, 2018, the Federal Energy Regulatory Commission (“FERC”) issued its Revised Policy Statement on Treatment of Income Taxes (the “FERC Revised Policy Statement”) to the effect that regulated interstate pipelines owned or operated by companies like Boardwalk will no longer be allowed to recover an income tax allowance in the cost of service that is used to determine the maximum applicable rates that regulated interstate pipeline operators may charge their customers.

On April 30, 2018, the Partnership disclosed in its Quarterly Report on Form 10-Q the issuance of the FERC Revised Policy Statement and certain related matters, and certain of their implications, including that Boardwalk Pipeline Holding Co. (“BPHC”) had advised the Partnership that Boardwalk GP was analyzing the FERC’s recent actions and seriously considering exercising its purchase right under the Partnership Agreement in light of the FERC’s actions. Also on April 30, 2018, BPHC amended its Schedule 13D to indicate that Boardwalk GP was analyzing the FERC’s recent actions and seriously considering exercising its purchase right under the Partnership Agreement in light of the FERC’s actions.  Also on April 30, 2018, a representative of Loews Corporation, an Affiliate of Boardwalk GP, stated that a decision whether or not to exercise the option was expected to be made sometime in 2018 and that no decision had yet been made.

On May 25, 2018, Plaintiffs filed their verified class action complaint (the “Complaint”) in the Delaware Chancery Court alleging that the April 30 disclosures “effectively capped the unit price” because investors would not rationally pay more for a unit than the trailing 180-trading day average, given that Boardwalk GP could exercise the purchase option at that trailing average price.  Moreover, if the downward trend continued, unitholders would receive a price for their common units lower than the price they would have received had Defendants not made the disclosures that were made on April 30. Plaintiffs further alleged that Boardwalk GP created a “death spiral” dynamic on the unit price, causing “downward pressure on the stock” in order to “depress the unit price” prior to an exercising of the purchase option.

On June 25, 2018, the Parties reached a settlement of the claims asserted in the action against Defendants (the “Settlement”), subject to Court approval.  The terms and conditions of the proposed Settlement are set forth in the Stipulation and Agreement of Compromise of Settlement (the “Stipulation”).  Pursuant to the proposed Settlement, the Parties agreed that if BPHC and Boardwalk GP elect to exercise their purchase option, they would do so in a manner so that the purchase price would be calculated using the 180 trading days ending no later than June 29, 2018.  BPHC and Boardwalk GP exercised the purchase option on June 29, 2018 and the purchase closed on July 18, 2018.

On June 27, 2018, the Court entered a scheduling order that, among other things, scheduled a Settlement Hearing to consider final approval of the Settlement and directed that notice of the Settlement be disseminated to the Class.  The Settlement Hearing will be held on September 28, 2018 at 10:00 a.m. Copies of the Stipulation and the Settlement Notice are available on the Case Documents page.

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